October 2011

Monday, October 31, 2011

Most of us don’t much like insurance of any type. If nothing else, it means confronting and directly dealing with risk. And life insurance can be an especially touchy subject, since it means dealing with the topic of death (usually our own). Still, life insurance is neither as scary nor as difficult as we may think. Fortunately, the Wall Street Journal recently provided a basic rundown for the wary on how to go about life insurance. Life insurance can be a powerful estate planning tool, because it is waiting to provide a potentially massive injection of liquidity into your estate at your time of death. It can mean the necessary income to provide support for your family, as well as pay off any debts, taxes and expenses you may leave behind. In addition, cash is king when it comes to paying estate taxes. This can be critical when your estate value is tilted toward illiquid assets like a family business interest. Still, the type and amount of life insurance that is right for you will depend on your own unique circumstances and the purpose of the insurance. Before you begin wading into the life insurance analysis process, take a look at the Journal’s rundown of the basics. Then, make sure you get the advice of an insurance professional to help you.

Sunday, October 30, 2011

Blended families are a fairly normal part of modern life, with both divorces and remarriages becoming quite common. That said, this fact of life accounts for a good portion of the family baggage of modern living and a lion’s share of the estate planning problems. Blended families have some extra concerns and extra problems, especially when each spouse hopes to take care of their own children from a previous marriage. A recent Forbes article explores a particularly strange probate case to prove the point. Word to the wise: Watch out for QTIPs (and not just because your doctor is worried you will hurt your ear). A QTIP is shorthand for “Qualified Terminable Interest Property.” It is a way to hold property for the surviving spouse that qualifies for the unlimited marital deduction without being an outright bequest. Of course, a spouse can always give his or her assets outright to their surviving spouse without incurring taxation. In the case of an outright bequest the surviving spouse gets to deal with the outright assets as his or her own property (because it is). But what if you ultimately wanted to give the property to your children from a previous marriage, but you wanted to allow your spouse to have it until their own death? That’s the planning strategy that lead to the contested probate court case of In the Matter of The Estate of Sydney Stark, as described by Forbes. Sydney Stark used the QTIP to leave an apartment to his wife, Sylvia, and then ultimately to his children from a previous marriage. The problem with the QTIP is that the assets in the QTIP have to count as being owned within the surviving spouse’s estate to qualify for the marital deduction. As a result, it becomes more likely that the surviving spouse’s estate may incur the estate tax. Sylvia Stark’s estate did. In the case of a blended family like this one, with Sylvia leaving her assets to her own child of a previous marriage, this strategy meant Sylvia left an estate tax bill to her own child without the additional assets to pay the IRS. Why? The QTIP assets passed fully to the children of Sydney Stark. Naturally, Sylvia’s own child cried foul. You can read more about QTIPs and the unfortunate tale of this dystopian Brady Bunch in the original article. In the end, this case provides yet another lesson about matters for careful consideration when planning your estate, especially if you and your spouse have complex and potentially competing interests.

Saturday, October 29, 2011

Have we bounced back from the Great Recession or are we still languishing (and due for another fall backwards)? This is a hot topic in political and economic circles, let alone around kitchen tables. It’s also a question of importance in the world of philanthropy. As the Chronicle of Philanthropy reports, America’s biggest charities are expecting modest growth in 2011, but face challenges in rebounding from the 2008 tumble. One way the Chronicle charts the world of charitable giving is through the Philanthropy 400, tracking the largest 400 charities. Think of it as the Forbes 400 of charities. Out of these 400, the expectation is that charities will see a modest median rise of 4.7% by the end of 2011. That is good news because this will be a net rise over 2010 growth, when charities were able to gather up an additional median gain of 3.5%. Nevertheless, those charities are still below 2007 levels and much of the gains have been in the form of donated medicine, food, and services rather than monetary funds. The Chronicle counts the 400 as a barometer of the charitable world. As such, it is a reminder of the many needs out there. The article also charts some patterns in charities of interest to the savvy philanthropist. There is a bit of promising news for the charitably inclined, too, as headway has been made on the worldwide malaria problem, with charitable organizations at the forefront of vaccine development. However, these charities need more funding to eradicate the disease.

Friday, October 28, 2011

After much speculation, the Department of Health and Human Services (HHS) has pulled the plug on the CLASS part of the health law. As a recent Reuters article points out, this brings to the fore the question of long-term care insurance, both as it impacts the United States in general and each of us in particular, as potential patients in need of such care. The CLASS act was the first attempt at establishing a public option for long-term care insurance and that put it between the proverbial rock and a hard place. The late Senator Kennedy championed the cause. Politics aside, what torpedoed the CLASS act? Money. According to HHS, the program would prove too costly to achieve its goal. Why? Too few healthy people would elect to pay the required premiums. But what now? The Center for Retirement Research at Boston College notes that about one-third of the Americans turning 65 this year will need at least three months of nursing home care sometime during their lives. Presumably, however, many of these same Americans will need such care even longer (and future generations can’t be expected to fare much better). So, how we deal with long-term care as a country is yet to be seen. Regardless, since you or a loved one will likely need long-term care, the question remains: How will you pay for it? An increasing number of forward-thinking people are turning to private long-term care insurance, but as many as 59% have yet to get their own private long-term care insurance policy or plan to get it (according to a 2010 survey). Is private long-term care insurance right for you or a loved one? For many who wait too long pondering this question, their default option is the more complicated question of Medicare and Medicaid. Undoubtedly, Medicaid (the means-tested shared federal-state program) is the largest source of long-term care financing. However, last time I checked, the federal government was not exactly flush with cash and many states are operating in the red. In the end, whatever you decide to do when it comes to paying for long-term care, the best time to make plans is yesterday. Whatever you do, be sure to seek appropriate legal counsel.

Thursday, October 27, 2011

Surprise. It’s a big year for the IRS and they’ve been opening many new fronts in the drive to assert tax law compliance. One of the largest and most unique fronts the IRS has opened has been a far-reaching gift tax audit on real estate transfers. As a recent Forbes article reports, the battle is tough going for the IRS, too. The IRS estimates that somewhere between 60% and 90% of taxpayers will fail to file a gift tax return, despite having engaged in activity that requires a filing. As a result, it’s clear this is neither a petty problem in the Service’s eyes nor is it merely chump change waiting to be claimed. The problem with enforcing the gift tax has been the inability to catch someone in the act. Never fear, the IRS has found just the right tool in the form of land records maintained at the state and local levels. Why? These public records allow the IRS to independently track the movement of properties between persons that haven’t shown up in gift tax returns. Family homes are just the sort of thing to pass easily between family members. However, things are rarely that easy when the IRS gets involved and that is just what’s happening now. The lesson to be learned, regardless whether you have transferred any land in the past, is to be aware and diligent. While there are many ways and means to accomplishing your wealth transfer goals, you have to use the right tools. Alternatively, those taxpayers who have transferred property without due diligence to the IRS’s gift taxes (and anyone following this story) have a grand development to watch. The IRS needs the states’ compliance to make their plan work and, while this has meant a great deal of cooperation in much of the country, it has met with resistance in California. There the courts have bristled at the IRS’s attempts to demand records. Forbes has a story to tell in the original article and the question remains: Will State courts further mire the IRS’s great gift tax audit effort?

Wednesday, October 26, 2011

Oftentimes, proper planning is about the ability to offer proper proof. That’s my primary take-away lesson from the Ninth Circuit Court of Appeals and the case of Estate of Petter v. Commissioner, as assessed in a recent Forbes article. As many of you appreciate, when giving away assets it is important to get the most bang for your buck and that can be achieved by generating “discounts.” This was the plan of Ms. Petter when she transferred $22 million of UPS stock to a limited liability company (LLC) and then gave or sold units of the LLC to her heirs. Note: An LLC can help diffuse ownership and effectively transform the taxable value of the underlying assets. This transformation of value hinges on the “marketability” of the interests held by the LLC members and their degree of “control” over the assets. As a result, the lack of marketability and control makes the interests held by the LLC members less valuable. Accordingly, such interests are “worth less” than the face value of the underlying assets and their value inside the LLC may be “discounted.” Such was the case with the LLC established by Ms. Petter. Ms. Petter claimed a whopping 51% discount on the underlying assets of the LLC. Unfortunately, she was unable to support this discounted value and the IRS rejected that figure and approved a far more conservative discount of 36%. Not to be defeated, Ms. Petter tried another approach. She built a provision into her planning that were there a valuation dispute with the IRS, then any discounted percentage denied would automatically go to her chosen charity… instead of to her estate or an heir. Why? She wanted to avoid any gift or estate taxes. Naturally, the IRS challenged this fall back position, but the Ninth Circuit upheld it.

Tuesday, October 25, 2011

Bankruptcy can be a tough issue, especially to the small business owner whose customer has fallen on hard times. Problem #1: You’ve likely lost a customer for your products or services. Problem #2: You’ve likely lost the ability to collect the money the customer still owes you. Problem #3: The future potential bankruptcy “preference” may pull even more money from your coffers, as a Smart Business article points out. The bankruptcy of another means their ability to pay you is severely compromised, unless you’re “secured.” However, what if you were paid and the payment is deemed to have been a “preference” by the bankruptcy trustee? If the bankrupt company made a payment to you on or before the 90 days prior to filing for bankruptcy, then such payment becomes recoverable as a means of squaring away obligations. Bottom line: The trustee can take the payment back from you. If this happens to you, then you aren’t without options. Nevertheless, it does demand your full attention and cannot be ignored. The original article goes into considerable depth, but here is my take-away for you: find competent legal counsel to plead your case and run through the numbers.

Monday, October 24, 2011

Do you have a loved one with dementia? If the statistics hold, many more of us will have loved ones with dementia in the future. Unfortunately, with workers (who still have employment) staying on the job well into retirement, that means we will have many co-workers with dementia, too. A recent story out of DeKalb County (i.e., Atlanta) illustrates this coming trend. Meet Linda Carter, the Superior Court clerk of DeKalb County. At age 59, Linda suffers from early onset Alzheimer’s. Her condition was a secret held between Linda and a helpful confidant in the court office. This confidant helped Linda perform her duties and remain employed. Obviously, such an effort is not sustainable. Recently, their secret was revealed when Linda was offered a routine form to sign. In reality, the form was a letter of resignation prepared for her. She signed it. Linda wants her job back. She sued the court to reinstate her post, once it became clear what had transpired. Now, a quagmire has developed as other employees have deemed her mentally unfit to return to her post. While this is a rather novel case (especially arising in the context of a courthouse), it is illustrative of a growing problem in the workplace – employees who have Alzheimer’s or dementia. Alzheimer’s patients oftentimes will go to great lengths to hide their condition. This, in turn, puts an undue burden on others to recognize and properly deal with the situation. After all, those afflicted with the impairment aren’t without rights and “reasonable accommodations” ought to be made. As an employee, it’s important to know your abilities and how you are performing. Similarly, as a fellow employee it’s important to understand your co-workers and deal with the situation honestly. Regardless, these types of cases will only increase as statistics rarely lie.

Sunday, October 23, 2011

When you’re looking to pass on significant assets, a trust is a powerful tool. Quality is important. While a “crummy” trust won’t cut it, a “Crummey” trust just might do the trick. Poor puns like this and more abound in a recent Forbes article about “Crummey trusts” I thought you might enjoy. A “Crummey trust” – so named for the case of Crummey v. Commissioner and the good Reverend Crummey himself – is a way of legally avoiding estate taxes while passing on wealth to heirs by combining an irrevocable trust and a life insurance policy. To create a Crummey Trust, you first create the trust and then have it buy a life insurance policy on your life. In the end, when you pass away, the beneficiaries of the trust inherit the proceeds from the life insurance policy without that money ever “coming in contact” with your taxable estate. This strategy isn’t without its challenges, however. One challenge is the risk of incurring gift taxes. However, as long as annual premiums are below the gift tax threshold of $13,000 per person (and you don’t gift them anything else during the year in excess of that amount in combined gifts) you can stay in the clear. The biggest problem usually tends to lie in the practice of sending out annual letters – “Crummey letters’ – since the beneficiaries must be notified within very specific windows during which they may elect to withdraw the gifted funds. Failure on the part of the trustee to send out the letters can raise questions with the IRS and may upset the apple cart, so to speak, when seeking to qualify the annual gifts as falling within the annual gift exclusion. For this reason, many families find the safest approach is to engage a professional trustee to handle these notice letters and other administrative duties to ensure compliance.

Saturday, October 22, 2011

The recent passing of Steve Jobs has, for many admirers, raised anew the question of anonymous giving: is it better to give without taking credit? As a recent Reuter’s article points out, whether for Jobs or for the average donor, there are some important considerations to bear in mind. Jobs was famous for a great many accomplishments, not the least of which was being a self-made entrepreneur who transformed a garage-sized company into a titanic icon. As a result, he was a powerful force in business and popular culture alike. He also is famous for not being a charitable giver, quite unlike his Microsoft foil, Bill Gates. However, that raises the very real possibility that he did give to charity, perhaps in death, if not also in life… but he did so in secret. Indeed, it wouldn’t have been terribly hard, especially for one who has proven himself to be a private person. But why would Jobs (or you) elect to give anonymously? There are multiple sentiments supporting “quiet” giving. Whether you are bashful and wish to avoid undue accolades, or you simply want to avoid further solicitation, privacy is of considerable importance to many donors. Another basis supporting anonymous giving is religious tradition, as evident in traditions as disparate as Judaism and Buddhism. In the end, giving without recognition and fanfare holds an undeniably powerful pull and is the right choice for many. Nevertheless, there remains at least one consideration favoring the public giver, as pointed out in the article. Although giving privately provides an opportunity to do good in the world, giving publicly provides an opportunity for others to witness good being done in the world. In short, it provides a generous role model to the world. Either way, private or public, it’s clear that thinking about how to give can be as important as thinking about to whom. Whether Jobs gave privately is his own business. If he gave privately it’s because he wanted it that way. The question remains, however, how do you want to give?

Friday, October 21, 2011

If you and your family are screening nursing homes for a loved one, then you already know what a daunting process it can be. It may just be a little easier now with the federal government’s newly-revised Nursing Home Compare web service. As Forbes recently pointed out, the comparison tool offered through Medicare.gov has been simplified and expanded. Under advisement from the Centers for Medicare and Medicaid Services, the old criteria of 17 points has been replaced with a new set of 21 points based on specific issues like infections, falls, general well-being, and pressure ulcers – the very issues that residents and families may deal with directly once admitted to the facility. The idea is to make it easier for families to research their area and get an accurate understanding of quality and performance in possible nursing homes for their loved ones. Hopefully it can help you and your family as well.

Thursday, October 20, 2011

One of the most-heralded simplifications of the new estate tax law is portability of the individual’s federal estate tax exemption between married persons. Some media “experts” have been saying that portability would eliminate the need for most estate planning. Not true. As pointed out recently in the Journal of Financial Planning, credit shelter trusts are still a savvy planning strategy. Portability means that any unused portion of a deceased spouse’s estate tax exemption doesn’t simply dissipate but can go automatically to the surviving spouse. Each individual gets a $5 million exemption, which means a married couple can effectively protect up to $10 million with their combined exemptions. That amount is sufficient to protect the vast majority of estates, eliminating the need for a credit shelter trust to pass and protect the exemption of the first spouse to die. Or so it would seem. There are two conditions that limit the effectiveness of portability. The first is obvious: portability will expire at the end of 2012, unless Congress acts to preserve it. The second is that the surviving spouse must file a timely estate tax return in order for the IRS to assess and transfer the exemption, even if the estate value wouldn’t have otherwise triggered an estate tax return. So this simple, automatic portability thing is not as simple, nor as automatic as many would like believe. Moreover, portability as a technique lacks many estate planning advantages, especially in the cases of blended families, appreciating assets, or where sprinkling taxable income to beneficiaries in lower brackets could result in a net tax savings. Lastly, remember that portability will sunset for people dying on or after January 1, 2013. Relying on portability will be effective only in those situations in which both spouses die prior to that date. In most situations, a properly planned credit shelter trust will offer significant advantages over reliance on automatic portability.

Wednesday, October 19, 2011

Insurance, in its many forms, has been referred to as the Swiss Army Knife of estate planning – providing cash just when needed, and for pennies-on-the-premium-dollar. A solid life and estate plan may include long-term care insurance for advanced health care needs, life insurance to cover at least your final expenses, and even annuities to guarantee income. Rather than deal with two or three separate policies, though, there is a growing trend toward the use of combined insurance policies, but before buying, a recent Wall Street Journal article warns of potential drawbacks. Combined insurance policies come in a few shapes and sizes, but are generally based around long-term care insurance combined with a life insurance policy or an annuity. In the event that the policy holder requires long-term care, the funds come from the other component(s). Extra long-term care protection can often also be purchased. These policies may be a good deal for some. As the Journal points out: They allow those who don't use their long-term-care coverage to recoup money spent on premiums. Because many combined policies guarantee coverage at a set price, they also offer policyholders a way to hedge against the premium increases that have plagued holders of conventional long-term-care policies. Another benefit: For those in poor health, a combined policy may be easier to obtain. Nevertheless, since the policies are combined, using one policy effectively nullifies the other. There will either be no death benefit or no more steady income in the respective policies if the policy holder needs long-term care. Further, there may be other complications with a combined policy, depending upon your specific situation. Finally, these combined policies can be quite expensive. You can learn more about long-term care insurance in the Long-Term Care Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Tuesday, October 18, 2011

There are many strategies – or tools – available to the savvy estate planner to help protect and preserve the fruits of a lifetime of accomplishment, and pass them along to future generations. Bloomberg recently wrote about a specific type of trust known as the Dynasty Trust – a little known strategy that you might have thought was only suitable for the ultra-rich. However, in today’s tax environment, Dynasty Trusts are gaining popularity as a valid strategy for those of more modest means. Trusts can be powerful tools for overcoming transfer taxes to include the estate tax, the gift tax, and the generation-skipping transfer tax – but there are always limitations. A dynasty trust is used to pass money on to multiple generations of descendants while paying as little in taxes as possible. The trusts have no expiration date and there are no required minimum distributions, meaning their assets may grow for an unlimited number of future generations. This year represents a pretty good opportunity to set one up too, thanks in no small part to the generous gift tax exemptions in effect until the end of 2012. Currently the exemption is set at $5 million, and effectively $10 for married couples, which is a nice hefty amount to begin a trust. Since the trusts last indefinitely and avoid taxes, the money can simply accumulate over the remainder of your lifetime, offering a huge advantage over other transfer methods. Bloomberg offers some math: A dynasty trust funded with $10 million from a couple today could be worth as much as $184 million in 50 years, assuming no intergenerational transfer taxes and a 6 percent annual return, and before subtracting any federal income or capital-gains taxes paid on the trust’s investment returns. By comparison, assets not placed in a trust and taxed twice as an estate in that period could be worth $39 million at the end of 50 years, assuming a $1 million exemption and 55 percent top rate. Because of their unique nature, dynasty trusts can’t be set up in all states – most states have restrictions on the life of a trust – so setting one up might mean doing so across state lines. Still, if you are looking to set up this kind of family wealth, or transfer a large.

Monday, October 17, 2011

The sad tales of families squabbling over an inheritance (or disinheritance) oftentimes make public even the most intensively private of lives. Such is the case with John Steinbeck, and his family’s prolonged fight over a small piece of property he used to call his “little fishing place.” It’s just a little house at the end of a point jutting into a cove of Noyac Bay in Sag Harbor, NY. It’s just a writer’s shack, really, where Steinbeck wrote “Travels with Charley,” and other works. While alive, he worked to keep the place private. He even hand-stenciled a sign warning, “Trespassers Will Be Eaten.” But, his heirs have taken the little house and made a public spectacle of it. You can read the sad story online at the New York Times. Of course, the Steinbeck heirs are not unique. Intra-family feuds are rather common these days following the death of a family member. That fact was confirmed in a survey conducted by the AARP/Scudder Investment Program of Americans age 50 and over. According to the survey, 20 percent of the respondents cited problems among surviving family members due to their inheritance, or lack thereof. More often than not, these feuds are over tangible personal property and family business interests. So, how do you protect your legacy and preserve family harmony? Unfortunately, the truth is that even the best estate planning cannot prevent every instance of unreasonable behavior among heirs. But there are things you can do now, with proper legal planning and good communication, to avoid problems later on.

Sunday, October 16, 2011

For months we’ve been on the edge of our seats trying to figure out what Congress would do about the debt ceiling, and how their actions would affect the nation’s seniors. Finally, we can all breathe a quick sigh of relief … then go back to waiting. The recent debt deal did not raise taxes and it did not make the threatened cuts to Social Security or Medicare, but it does lay the groundwork for renewed discussion in the future. The AARP says the deal is mixed bag for older Americans, but not as bad as it might have been. Proposed cuts to Social Security and Medicare did not make it into the final bill. Of note, too, is that the proposed changes for calculating the Social Security Cost Of Living Adjustment (COLA) – a less generous formula that effectively cuts the benefit – did not make it into the final bill either. But in order to preserve these programs many other programs were slashed, including those emphasizing nutrition, senior job placement, and home and heating assistance. Nevertheless, the debt discussion was not put to rest, merely put on hold. One of the biggest results of the law is to create a congressional super-committee of six Democrats and six Republicans who must make significant budgetary recommendations by late November. By Christmas-time this year, Congress must act on these recommendations, or find a better solution, or else severe cuts will go into effect across both military and entitlements spending like Medicare and Social Security. For now, seniors can breathe a bit easier. But, clearly, the debt crisis has been postponed rather than resolved.

Saturday, October 15, 2011

I ran across an article last week written primarily for physicians (PhysiciansNews online), and while the advice was sound, the message really is appropriate for anyone who wants to preserve their hard-earned wealth and create a family legacy. Here are the high points: • It’s never too soon to start planning your estate. At a minimum, your estate plan should include a will, a power of attorney, a health-care proxy, and where appropriate, a trust. • Review and update in light of changing tax landscape. No one knows for sure what Congress will do about the currently-lapsed federal estate tax. But instead of keeping your hand in the sand, take time now to review and update your plan to take advantage of any (potentially expiring) opportunities to move your legacy forward. Physicians, professionals and business owners also should consider the issue of Asset Protection, which involves making prudent decisions today to protect yourself, your business, and your hard-earned assets from loss due to lawsuits, creditors or bankruptcies. This type of planning is especially prudent for professionals and business owners whose personal assets could be at risk due to the nature of their employment.

Friday, October 14, 2011

There is an old saying that can be painfully true, “You are only as happy as your unhappiest child.” One of the most common laments I hear from parents of adult children is that, for whatever reasons, their offspring seem to (repeatedly) need financial assistance … not because of illness of hardship, but simply through poor decision-making. It’s hard to talk-turkey with your adult children, and they seldom listen anyway. But, maybe they will listen to advice from a third-party, especially if that advice is delivered in a manner with which they are most comfortable – fresh, fun and online. American Express has launched Currency (www.getcurrency.com) to provide just that type of advice. They offer online “courses,” and even a new iPhone app, Social Currency for social networking. A recent hot topic: Currency 101: What is “Spending”? Some of other course topics include Buying Your First Home, Get a Handle on Your Taxes, and Managing Student Loans.

Thursday, October 13, 2011

Coping with the physical, emotional or developmental disabilities of a special needs child is part of the daily life of many parents. Then there is the added financial burden of providing care and security for all family members, both today and in the future. Parents are encouraged to call upon the trained expertise of financial and legal advisors. Last week, The Times Herald ran an excellent brief article highlighting some of the important aspects of Special Needs Planning, to include: • Retirement and Estate Planning for the parents. • Reviewing any beneficiary designations for life insurance, qualified retirement plans or annuities to ensure any inherited assets will not disqualify your special needs child from receiving vital federal benefits. • Consideration of establishing a Special Needs Trust to accumulate mange and disburse monies for any child with a disability. • Protecting the financial security of other family members – including college funds for other children in the family. If you are the parent of a special needs child, or know someone who is, I encourage you to visit the Special Needs Practice Center on our website. There you will find an abundance of information and resources, including our Free Report: Special People…Special Plans.

Wednesday, October 12, 2011

Sometimes, giving an asset to charity doesn’t mean you can no longer enjoy benefits from it. Yes, it’s true. And, the magical legal tool that affords this wonder is the “Charitable Remainder Trust (CRT).” Recently, Reuters cast another spotlight on this powerful tool with an eye to the future. A CRT, as many of you may be aware, is a specific type of irrevocable trust set up to give an asset away to charity at the time of death, but to allow you to receive income from the asset for your lifetime, another’s lifetime or even a period of years. The CRT allows you to do good, receive an income, and avoid some hefty taxes. As Reuter’s puts it: “In essence, the trust takes advantage of the tax-exempt status of the nonprofit it benefits.” The important thing about the CRT these days, at least as far as taxes are concerned, is the future. The returns on a CRT are similar to any investment in accordance with the market. And, with the market as it is, that’s not great. It follows then that the tax reduction might not be that great either. But many taxpayers are concerned about increased taxation in the future. President Obama already has called for further taxation with the new idea of the so-called Buffet Rule, not to mention the closing of Bush-era tax cuts and stricter estate taxes. For as many in Congress as are calling for tax reduction there are those calling for tax increases… and the super-committee might be turning the latter direction. If the Bush-era tax cuts expire, and in particular if the capital gains tax rises back up to 24% instead of 15%, the CRT will be quite the advantageous machine. In the end, a CRT is an irrevocable trust. It can’t be undone once it is created. More background and insights can be gleaned in the original article. Whether a CRT is right for you and your circumstances will require competent legal counsel. As always, look before you leap.

Tuesday, October 11, 2011

Giving to charity over your lifetime can be powerful. Not only can you make an impact on the charities you care about, but you enjoy personal satisfaction and even charitable deductions. Still, since the tax laws are in a state of flux (and we can only expect them to become more uncertain as the politics in Washington continues to boil over), making substantial lifetime gifts may become more dicey, especially given the fragile economy. As a result, giving at your death may be more attractive and practical. As the Wall Street Journal points out, there is always the option of leaving a bequest. One way to make a postmortem bequest is through your Last Will and Testament. While you lose the lifetime charitable deduction, the bequeathed amount is deducted from your estate value. Depending on the size of your estate, that deduction can be significant. It’s true that the estate tax exemption amount is (for most Americans) a safe $5 million, but there’s no guarantee it will stay there (as with the gift tax laws). Nevertheless, a bequest also is a more malleable means to benefit charity, since you can think about your decision over a longer period and can give more types of assets. A classic example is the ability to name a charity as beneficiary to your IRA without the income tax burden of required minimum distributions. Remember: Charities do not have to pay income taxes on your IRA like your heirs would. Indeed, there are many powerful tools to use when making a bequest, depending on the type of asset. Be sure to read the original Wall Street Journal article for more ideas.

Monday, October 10, 2011

The corporate veil is not an unlimited defense… as yet another owner of a sole shareholder corporation has discovered in a recent case, Bogosian v. All American Concessions, 2011 WL 4460362 (E.D.N.Y., Slip Copy, Sept. 26, 2011). So, what did him in? As Forbes reports it was undercapitalization, among other missteps, making the case one of several recent ones in a rash of such cases. It was the U.S. Open in 2005 and The United States Tennis Association contracted with Restaurant Associates to provide catering services. Restaurant Associates, in turn, subcontracted beverages out to All American Concessions. The sole shareholder of All American Concessions was one Marty Rosen. As a condition of the subcontract with Restaurant Associates, All American Concessions was required to obtain proper insurance. A class action suit was later filed against all three – the USTA, Restaurant Associates, and All American – leaving Restaurant Associates out $92,000, but with All American declining to participate. Naturally, Restaurant Associates sued All American for indemnification and even sought to “pierce the corporate veil” all the way to Marty Rosen. The veil was pierced and Rosen was on the hook for the $92,000. There were a couple of problems, and it should be noted that sole shareholder corporations oftentimes invite some of these problems unintentionally. Nevertheless, such invitations tend to leave them with greater exposure to veil-piercing claims. At the outset, it certainly didn’t help that Rosen failed to maintain all of the standard “corporate formalities” and, therefore, had little documentation to produce during discovery. But the far bigger issue is that All American was undercapitalized. That means it did not have the necessary capital to pay its liabilities. In the end, all would have been fine if Rosen had only purchased the insurance he was required. But, he did not. As a result, that put All American in a tight spot, as well as Rosen himself, once the corporate veil was pierced. While this case is instructive on many levels, it is a good lesson in the powers of a corporation. True, a corporation protects against “unlimited liability,” but it still requires liability for the appropriate capital for a particular transaction undertaken. Yes, it’s easy to move capital around, but the rule of thumb is to have sufficient capital to cover O&O, operations and obligations. The corporation can be a powerful vehicle, but only with the proper care. Indeed, for greater protection, other measures also may be needed.

Sunday, October 09, 2011

In addition to a spirit of charity, information about the object of such giving is essential. A gift can have greater impact when it is intentionally given to effect an outcome. Interestingly, The Center on Philanthropy at Indiana University recently released the Million Dollar List, an interesting tool for empowering the philanthropist and the nosy alike. This list is a compilation of all available information on publicly-announced gifts of $1 million or more. It is further organized by several metrics and into various charts. The list enables searches by state, organization type, and even individual donors. Browsing through the list you can see hard data on what fields are underrepresented and which ones are overrepresented, as well as geographical patterns. As a result, you can even take cues from some rather famous philanthropists. Not surprisingly, Warren Buffet and the Gates family top the list, but that doesn’t mean that there aren’t some interesting statistics. For example, 70% of all reported gifts are made by individuals (rather than by corporations), some 6,780 of the gifts were made by individuals who made just one gift at or above $1 million. Those individual donors make up only 11% of the gifts, but make up nearly 40% of the dollar amount. Go ahead and play around with the list tools for yourself. While you are at it, Forbes has an article with some more insights. It’s nice to see gifts working in black and white, and to get a better appreciation for how charity works on such a large scale.

Saturday, October 08, 2011

It’s Medicare season once again, but it’s early this time. Unfortunately, many seniors just haven’t gotten the message. The open enrollment period is now from October 15 to December 7. And that’s a whole month earlier than in the past. According to a recent survey in Florida and reported through the Kaiser Health News, nearly two-thirds of seniors are unaware that Medicare enrollment is earlier this year. So, why the change? The Affordable Care Act. Along with the accelerated enrollment period, it is hoped that beneficiaries will have their Medicare cards by the start of the New Year. Customarily, late enrollees find themselves in a bit of a pickle (i.e., without their Medicare cards) come January 1. While the start date this year is non-memorable (October 15), the deadline isn’t for most Americans of Medicare eligibility age (December 7). Of course, the enrollment period isn’t the only change afoot with Medicare. Like last Medicare season, the sheer number of plans has been pared down in an effort to make selection easier. Planning pointer: Review your anticipated medical needs (or those of your senior loved ones) to determine whether a change in plan is warranted. As a result, you could stand to save hundreds – or even thousands – of dollars. Many seniors don’t make plan changes out of habit. Accordingly, some diligent (and gentle) prodding may be in order.

Friday, October 07, 2011

The Tax Relief Act of 2010, passed in December, opens a number of new estate planning opportunities – some of which may be short-lived, since the law expires at the end of 2012. Of course, with the change in the law comes the possibility that your current estate planning may need some updates, both to reflect the new rules and perhaps to take advantage of opportunities that were not previously available to you. In their article The New Rules of Estate Planning, Smart Money focused on a few of the most common issues to consider. • Gifting as a Means of Asset Protection. The new law raises the gift tax exemption from $1 million to $5 million, which means you can give away up to $5 million of your estate without paying gift taxes. Under the previous law, sheltering significant holdings from potential creditors required sophisticated planning, legal entities and valuation discounts. Now, especially with the market-induced valuation discounts, transferring significant holdings is much less complex, and you can much more easily shift up to $5 million to someone else. If you have asset protection concerns, this may be a strategy to discuss with your estate attorney. • Formula Clauses. Certain wording in older estate planning documents could have unintended consequences in today’s generous tax-exemption environment. For example, it was not uncommon for documents to call for “an amount up to the federal estate tax exemption” to be transferred to a trust for the benefit of your children, with the balance passing on to your spouse. This, when the exemption amount was $675,000, may have made sense. But with a $5 million exemption, the same language could easily result in unintentionally disinheriting your spouse. • Dynasty Trusts. The new rules also make certain types of trusts more attractive, like the Dynasty Trust, which can shelter assets from estate taxes for generations. More than half the states and the District of Columbia now allow such trusts, and there is talk that these types of trusts could be curtailed in the future. So now may be a good time to explore the possibility. • State Taxes. Sixteen states and the District of Columbia have decoupled from the federal estate tax guidelines and enacted their own estate tax laws. And, given the revenue-fix many states are in, who knows what will happen next? To help avoid a future state tax bite, an aggressive gifting strategy now might be a good strategy to consider. You can learn more about estate and gift taxes on the Estate Tax Practice Center on our website. And, be sure to sign up for our free monthly e-newsletter to stay abreast of changes that could affect you, your family and your estate plan.

Thursday, October 06, 2011

What is the quickest way to un-do an otherwise carefully planned estate? Open a bank account, brokerage or retirement account. Why? Because the beneficiary designations on these accounts override your will. Yes, it’s true – the beneficiary designation is the estate planning trump card. And many an estate plan has come undone because of carelessly named beneficiaries. The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form. “People don’t realize the importance of this,” says Martin Shenkman, an estate planning lawyer in Paramus, NJ. A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill. The Journal also offers a few tips to protect you from this type of estate plan destruction, to include: Know what kinds of accounts have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other accounts for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds. Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA. Learn more about beneficiary designations in the August 2010 issue of our newsletter, aptly titled Beneficiary Designations.

Wednesday, October 05, 2011

Some people who thought they had covered all their bases and acted responsibly to care for loved ones in the event of a debilitating illness or incapacity are finding their plans un-done by strict banking policies. Bank of America recently updated their online security procedures, and no longer accepts a power of attorney for online banking. As Bernard Krooks wrote last week for Forbes, this strict policy came to light when Chicago resident Eva Kripke was blocked from accessing her husband’s Bank of America account. According to Krooks, Mrs. Kripke had been handling her husband Sidney’s bank accounts as agent under a power of attorney ever since he was diagnosed with Lew body dementia four years ago. Suddenly now, however, she is denied access under the bank’s updated security procedures. The bank suggested she to go to her local branch and get a printout of her husband’s account information. Unfortunately, Mrs. Kripke felt this was unacceptable because her husband’s health status requires close financial oversight. Perhaps more unfortunate, her options are limited because her husband’s illness has rendered him incompetent. Rules such as these are becoming increasingly prevalent and significant as more people are called upon to care for an aging population and their attendant disabilities. An experienced elder law attorney can provide guidance in situations where powers of attorney are limited.

Tuesday, October 04, 2011

With the new estate tax laws in place, including the $5 million exemption ($10 million for a married couple), many people are enjoying a false sense of security about any potential estate tax liability. First, as Forbes recently pointed out, keep in mind this new generous law expires at the end of 2012 … and it’s anyone’s guess what will happen next. In the meantime, also remember that if your state imposes a state estate or inheritance tax, the likely outcome is that combined federal and state taxes could pack a surprising punch for those above the $5 million exemption amount. The federal estate tax rate runs 35 percent, but depending on where you live, combined federal and state tax rates could run as high as 48 percent. Forbes has a handy chart here for you to review the impact of combined state and federal estate taxes by state. You can learn more about estate taxes on the Estate Tax Practice Center on our website. Also, stay informed about changes in the law that could affect you and your estate planning by subscribing to our free monthly estate planning e-newsletter.

Monday, October 03, 2011

When should you start taking your Social Security benefits? The current common advice is to wait as long as possible, in order to maximize your eventual monthly benefit. In fact, AARP recently launched a new online calculator to help you decide when to start taking benefits … and it clearly illustrates the benefits to claiming later. The calculator is a useful tool, and worth checking out, but as Reuters Wealth points out, the calculator is not totally neutral, and lacks advanced features that could allow you to estimate more complex situations. For example, the AARP calculator does not allow you to figure out when you should start benefits if you are no longer working and have to weigh savings withdrawals against starting benefits. It also won’t allow you to figure the tax impact of your decisions, which can be sizable. Further, it really does not allow you to compare the outcome of various scenarios in which you and your spouse choose different start dates to coordinate benefits. For those types of complex calculations, you probably will still want to consult with a professional who can help identify issues pertinent to your unique situation. Other websites with helpful calculators include: • Should you Start Social Security Early • Break-Even Calculator • Social Security Administration.

Sunday, October 02, 2011

Proper estate planning for your assets depends, in large part, on what those assets are. Common assets in an estate include the obvious, such as real estate, collections, cash, brokerage accounts, retirement funds and stock portfolios. However, there can be less obvious assets requiring special attention. A recent article through Forbes points this out with a fairly common example that is all too easily forgotten: the special estate planning problem of guns. Guns are as natural to own for some as any other asset is. Indeed, to some, their firearms collection is really more akin to an art collection. That noted, under the law, passing down your firearms to your heirs may trigger a different set of laws than passing down your tools set or the painting in your hearth room. Firearms are highly regulated at both the federal and state levels. Consequently, the laws and regulations need to be followed, particularly if the firearms will be crossing state lines. Passing down firearms to heirs can take time and require the approval of several parties, such as the chief law enforcement officer for the respective jurisdictions. Enter the “gun trust.” This can be a simple and powerful tool to pass down your firearms. Practically speaking, it is a special purpose revocable living trust. At its formation, the owner of the trust is both trustee and beneficiary. At the owner’s death, the trust property (i.e., firearms) is passed down to the lifetime and remainder beneficiaries by the successor trustees. Of course, trust or not, there are some hard and fast rules imposed by the National Firearms Act and all parties have to comply with them (or risk incurring serious fines and possibly even forfeiture of the right to bear arms). Your firearms (and other atypical estate assets), may hold a unique status under federal and state laws. Make sure you comply with any law governing their transfer, as part of your estate planning.

Saturday, October 01, 2011

Dementia and Alzheimer’s can prove to be huge challenges for the healthcare institutions we trust to care for our affected loved ones. Unfortunately, these are challenges many institutions meet with the over-use, abuse or improper use of drugs. The good news is that this problematic trend is being identified and resolved for many families. As recently reported by the Associated Press, the turn to drugs for nursing home patients with dementia is nothing new. Dementia has a nasty tendency to disorient patients who may grow paranoid or lash out as a result. The safest way to protect them and others has been through medication to calm them. Of course, under-funded institutions also have a tendency to use drugs to a fault, and many use the wrong drugs, like antipsychotics. These drugs (like Risperdal, Zyprexa, Seroquel, Geodon, Abilify, Invega, and older medications) are designed to help people suffering from schizophrenia or bipolar disorder… and are not approved for dementia patients. Since 2005, these drugs have been under an FDA warning that they can cause an increased rate of death in dementia patients (due to heart attacks and pneumonia). Nevertheless, as of 2007 (according to a recently released government audit), about one in seven nursing home patients aged 65 or older was prescribed at least one of the drugs and, in about 83% of these cases, the prescription was for off-label use, like treating dementia. Ironically, the use of these drugs can create further confusion for the dementia patient and impair his or her ability to interact normally. Not surprisingly, many dementia patients actually have improved dispositions when they are taken off of these drugs. It’s hard to estimate how widespread the problem is today, but at least it has been recognized and many institutions are correcting the trend. While the use of drugs is not bad in all cases (since there are patients who are severely disoriented), but certainly not every patient needs them or needs them at full strength. This is just one more concern to bear in mind when you visit your elderly loved one and when choosing the right nursing home for them.